Many entrepreneurs are either tired of working for the man, therefore, they’re going to “show him” and go work for him/herself (fail) or they are a person who has a trade, a passion, or a high level of experience in a given field and they create a company around their knowledge (usually fail). The common theme for most entrepreneurs is that they do indeed fail, but why in fact they fail is an inexact science. I’m sure all of you have heard the statistic that 70% of all small businesses fail within their first three years due to poor/mismanaged cash flows. It’s simple really, if your cash dries up, so does your company. But why does this happen?
The logic is typically assumed, and utterly false when one says because they are an entrepreneur, they are a businessman. If we break down the very basics of the word entrepreneur; entre representing enterprise and preneur meaning taker, or one who takes; we can logically deduct that an entrepreneur is one who takes on an enterprise.
Most entrepreneurs are not MBAs, they do not have a business degree, nor have they ever taken a business class. Now, is this an absolute? Of course not, but it does shine a light on the gap between business knowhow and entrepreneurship. Business knowhow is a broad area, and I believe it touches on every aspect of a business, or simply business in general. The intricate platforms of tax implications, diverse global markets, legal aspects, supply chain and operations, etc. Even small businesses have inner supply chains and within those supply chains, logistics (logistics is a piece of the supply chain puzzle, not the puzzle itself) and understanding the different interactions of the different business arenas within your small business is a difficult and demanding task.
The problem I most often see is that entrepreneurs become so myopic to their product, passion, or expertise, that they are blindsided by the harsh realities of simple business. Most entrepreneurs have no idea what it means to have pro forma financial statements, or a weighted capital structure.
Again, is this knowledge an absolute for small business success? No, if you come up with the next Facebook, then there will be plenty of other people who will gladly take the business reigns of your company for you; however, if you’re trying to build your business from the ground up, bootstrapping all along the way, and fighting the competitive landscape that is today’s economy, then I strongly feel that a comprehensive level of business knowhow is a key hidden ingredient.